These ratings are restated from the Ratings
Report indicated above, which was produced outside the European Union, and
therefore are not issued by The Economist Intelligence Unit credit rating
agency, which is registered in accordance with Regulation (EC) No 1060/2009 of
16 September 2009, on credit rating agencies, as amended. This report and the
ratings, therefore, are not issued pursuant to such Regulation and do not fall
within its scope.

The high ratio of public debt to GDP continues to weigh on the sovereign risk score. The level of foreign-exchange reserves remains low; in May it amounted to barely more than three months' worth of import cover—the minimum level recommended by the IMF.

Currency risk

The score for currency risk falls within the BB rating band. A narrowing interest-rate differential with the US and a persistent shortfall on the current account will continue to exert downward pressure on the Sri Lanka rupee in 2018-19.

Banking sector risk

A consistently low non-performing loan ratio and strengthening bank profits will support the banking sector in 2018-19. Moreover, technical assistance from the IMF is likely to bolster financial regulation and improve the quality of lending.

Political risk

Despite deepening rifts in the coalition, the government will serve out its term until the next parliamentary election, scheduled for 2020. A divided parliament will impede policymaking in 2018-19. The risk of social unrest emerging from ethnic and religious tensions will hurt political stability further.

Economic structure risk

The high level of public debt and Sri Lanka's heavy reliance on exports of textiles and garments will continue to weigh on the score in 2018-19. Structural economic policy weaknesses and a dependence on foreign capital leave the country vulnerable to external shocks and contagion from financial market volatility in emerging markets.